Regime Switching GARCH Models

CORE Discussion Paper No. 2006/11

24 Pages Posted: 14 Jul 2006

See all articles by Luc Bauwens

Luc Bauwens

Université catholique de Louvain

Arie Preminger

University of Haifa - Department of Economics; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

J. V. K. Rombouts

HEC Montreal; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE); Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE); Center for Interuniversity Research and Analysis on Organization (CIRANO)

Date Written: February 2006

Abstract

We develop univariate regime-switching GARCH (RS-GARCH) models wherein the conditional variance switches in time from one GARCH process to another. The switching is governed by a time-varying probability, specified as a function of past information. We provide sufficient conditions for stationarity and existence of moments. Because of path dependence, maximum likelihood estimation is infeasible. By enlarging the parameter space to include the state variables, Bayesian estimation using a Gibbs sampling algorithm is feasible. We apply this model using the NASDAQ daily return series.

Keywords: GARCH, regime switching, Bayesian inference

JEL Classification: C11, C22, C52

Suggested Citation

Bauwens, Luc and Preminger, Arie and Rombouts, Jeroen, Regime Switching GARCH Models (February 2006). CORE Discussion Paper No. 2006/11, Available at SSRN: https://ssrn.com/abstract=914144 or http://dx.doi.org/10.2139/ssrn.914144

Luc Bauwens (Contact Author)

Université catholique de Louvain ( email )

CORE
34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
32 10 474321 (Phone)
32 10 474301 (Fax)

Arie Preminger

University of Haifa - Department of Economics ( email )

Haifa 31905
Israel

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Jeroen Rombouts

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE) ( email )

Pavillon De Sève
Ste-Foy, Quebec G1K 7P4
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
648
Abstract Views
2,682
rank
51,595
PlumX Metrics